Question

On May 9, 2018, Calvin acquired 800 shares of stock in Hobbes Corporation, a new startup company, for $81,100. Calvin acquired the stock directly from Hobbes, and it is classified as § 1244 stock (at the time Calvin acquired his stock, the corporation had $900,000 of paid-in capital). On January 15, 2020, Calvin sold all of his Hobbes stock for $8,110. Assume that Calvin is single, determine his tax consequences as a result of this sale. If an amount is zero, enter "0". As a result of the sale, Calvin has: Ordinary loss: Short-term capital loss: Long-term capital loss:

Answer 1

Ordinary loss = $50,000

Short-term capital loss = $0

Long-term capital loss = $22,990

Step-by-step explanation:

a. Computation of total loss

Total loss = Acquisition cost - Sales proceeds = $81,100 - $8,110 = $72,990

b. Determination of ordinary loss

Ordinary loss = $50,000

This is because for a single, ordinary loss is limited to $50,000 for stock classified as 1244.

c. Determination of short-term capital loss

Short-term capital loss = $0

Short-term capital loss is $0 because the share was held for more than one year before it was resold.

d. Computation of long-term capital loss

Long-term capital loss = Total loss - Ordinary loss = $72,990 - $50,000 = $22,990